Journal of Business Research 156 (2023) 113450

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Journal of Business Research

journal homepage: www.elsevier.com/locate/jbusres

Innovation finance ecosystems for entrepreneurial firms: A conceptual

model and research propositions
Farzad Haider Alvi a, *, Klaus Ulrich b
a
Athabasca University, Faculty of Business, 1 University Drive, Athabasca, AB T9S 3A3, Canada
b
ESIC Business and Marketing School & ESIC University, Av. de Blasco Ibáñez, 55, 46021 València, Spain

A R T I C L E I N F O A B S T R A C T

Keywords: This paper presents a conceptual model for examining the matching of entrepreneurial firms and sources of
Entrepreneurial finance finance under conditions of innovation. The model applies to entrepreneurial ecosystems, typically the site for
Innovation finance studying venture capital investment in technology start-ups. By delimiting ecosystems along sectoral and tem­
Entrepreneurial ecosystems
poral dimensions, the model considers a diversity of industry sectors and a diversity of funders, across the early,
Incubators
Accelerators
growth, and mature stages of a firm. The conceptual model suggests that where there might appear to be funding
gaps, there could instead be overlaps. Based on the sectoral and temporal dimensions, research propositions are
formulated. These propositions outline a research agenda that examines the relationship between innovation and
sectoral and temporal dimensions, the impact of innovation on firms and funders, the role of reinvestment into
the ecosystem as the lifeblood for a self-reproducing healthy ecosystem, and the possible geographic limitations
of ecosystem models.

1. Introduction and non-financial motivations (Morrissette, 2007). Another example is

This paper addresses the research question of how entrepreneurial
firms (firms) and sources of finance (funders) are matched with one
another (Song and Jain, 2021). Answering this question is important
because an entrepreneurial ecosystem (EE) requires the reliable injec­
tion of financial resources to be successful (Roundy et al., 2018; Spigel,
2017), whereas, conversely, funding gaps can impair the growth of
entrepreneurial firms (Block et al., 2017; Cumming et al., 2019a). This
paper proposes a conceptual model of innovation finance that contrib­
utes to recent theorizing on the nature of EEs. The model and associated
research propositions illustrate how innovation increases the complexity
of firm-funder matching. Given that EEs are subsets of broader innova­
tion ecosystems (Maroufkhani et al., 2018), the innovation finance
ecosystem is conceptualized in tandem with the EE literature.
As difficult as it is to match firms and funders, the process is further
complicated by the forces of innovation that affect both firms (Dosi,
1990; Covin and Slevin, 1991) and funders (Chemmanur et al., 2020;
Knewtson and Rosenbaum, 2020). Yet, innovation is routinely invoked
in public policy agendas to foster economic growth (Hamdan et al.,
2020; Breznitz, 2021), despite uncertainties embedded in the matching
process. For example, firms often have competing and opaque financial
the changing governance needs of firms, from mentoring in early
financing rounds to discipline in later rounds demanded by investors
(Bessiere et al., 2020). There is also a laddering of different types of
innovative funding that can interact with one another, where one type of
funding is a step to another and sometimes different type (Bessiere et al.,
2020; Capizzi et al., 2022).
This paper presents a conceptual model for examining the matching
of firms and funders under conditions of innovation. Recent theorizing
highlights the need for more research on firms’ access to finance based
on innovativeness, firm age, and geography (Frimanslund et al., 2022)
and for studies on how the variety and continuity of funding sources
affect the success of EEs (Radinger-Peer et al., 2018). The matching of
firms and funders takes place under a holistic view of EEs, where stra­
tegic positioning and dynamic interactions of ecosystem actors create
continuous evolution (Theodoraki et al., 2022; Abootorabi et al., 2021;
Cho et al., 2022). Further, the interactions between EE actors, organi­
zations, and macro-level institutional and socio-cultural forces form
complex adaptive systems (Roundy et al., 2018). Investigating such
holistic and complex adaptive systems requires further consideration of
how the injection of resources such as financial capital allows for the
emergence and reproduction of an EE (Roundy et al., 2018; Spigel,

* Corresponding author.
E-mail addresses: farzad.alvi@gmail.com, falvi@athabascau.ca (F. Haider Alvi).

https://doi.org/10.1016/j.jbusres.2022.113450
Received 1 July 2022; Received in revised form 5 November 2022; Accepted 7 November 2022
Available online 25 November 2022
0148-2963/© 2023 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
F. Haider Alvi and K. Ulrich
2017).
This paper contributes to existing theorizing by considering sectoral
and temporal dimensions in relation to the matching of firms and fun­
ders. The sectoral dimension relates to the matching of firms and funders
in multiple industry sectors in multiple contexts. Examining this
dimension means considering not only technology but also natural re­
sources, social enterprises, agriculture, health, professional services, and
education, to name a few. Rather than prioritizing the Silicon Valley
technology firms and professional VCs (venture capital firms) that
dominate the literature (Audretsch, 2019; Maroufkhani et al., 2018;
Breznitz, 2021), broadening the sectoral view can reveal greater nu­
ances than what is found in a single sector and geographic location. The
temporal dimension entails reinvestment and rebirth within an
ecosystem. The typical view of the firm life cycle as birth and death
(Berger and Udell, 1998; Bonini and Capizzi, 2019) can be expanded to
include rebirth (Cantner et al., 2020). This expanded view then extends
the conceptualization of funders not only in terms of investment in an
ecosystem but also in terms of longitudinal considerations of exiting and
reinvesting. There are important policy implications because the secto­
ral and temporal dimensions interact in a way that counteracts the
myopia of a technology ecosystem that exacerbates social inequalities.
The wealth generated by a technology boom is not always reinvested in
the economy where it was generated (Breznitz, 2021, p. 47).
By employing the lens of sectoral and temporal dimensions, the
conceptual model embraces innovative EEs as a site for observing firm
and funder matching, thereby addressing gaps in the literature. Specif­
ically, the proposed conceptual model’s temporal dimension addresses
the need for greater granularity in understanding sources of funding and
funding gaps for ventures in EEs (Block et al., 2017; Cumming et al.,
2019a). In turn, the model’s sectoral dimension addresses the diversity
of entrepreneurial innovation needed for the success of EEs, going
beyond a singular focus on the technology sector (Guerrero et al., 2020).
To illustrate the conceptual model, examples from the Canadian prov­
inces of Ontario and Alberta are provided.
Applying sectoral and temporal dimensions to innovative EEs is
captured by the metaphor of an inclusive “big tent”. An EE big tent is
analogous to a political party trying to broaden its appeal to a wider base
of voters. This approach draws in a more diverse array of industry sec­
tors than, say, the narrow range of technology firms in Silicon Valley.
Along the temporal dimension, the financing of diverse firms in the big
tent extends beyond a life cycle circumscribed by a clear beginning and
end. Instead, financing occurs in an ecosystem that entertains reinvest­
ment, reinvention, and rebirth. In other words, the matching of firms
and funders merits consideration of how innovation allows an EE to
reproduce itself as a process.
Innovation finance as a process of reproduction is similar to the
biological concept of ecosystems that has been applied to organizational
life. It is manifested as innovation, capability development, and business
models associated with entrepreneurship (Acs et al., 2017). Equilibrium
points are created, distorted, and reset based on the survival of some
agents and the deaths of others (Cantner et al., 2020). A healthy
ecosystem evolves and reproduces itself, creating favorable conditions
for the matching of firms and funders. Innovation ecosystems rely on
overlapping technology, enabling one another’s economies of scale or
scope, or sharing normative, socially constructed values and purpose as
a basis for organizing and governing the ecosystem (Jacobides et al.,
2018; Thomas and Autio, 2019).
EEs support the growth and survival of entrepreneurial firms and
provide fertile ground for developing a policy agenda (Hamdan et al.,
2020; Engel, 2015; Maroufkhani et al., 2018; Breznitz, 2021; Roundy
et al., 2017). The stakes can be high because the policy agenda covers
the uncertain process through which firms and funders are matched
(Song and Jain, 2021). For example, Innovate Edmonton in Alberta is
developing an EE tasked with stimulating recovery following a deep
economic crisis. The crisis was precipitated by the collapse of oil prices
during the COVID-19 pandemic. Combined with the historical
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Journal of Business Research 156 (2023) 113450
overconcentration of the province of Alberta’s economy in the natural
resource sector, this drop in prices resulted in the city of Edmonton
having the highest unemployment rate among major Canadian cities by
mid-2020. Adopting a more inclusive big tent approach, Innovate
Edmonton has been explicit in its desire to increase the intensity of
matching a greater diversity of funders and firms to promote firm sur­
vival and economic recovery (Innovate Edmonton, 2021). This example
is in line with research on EEs showing that non-technology sectors such
as social enterprises can be incubated and accelerated (Steiner and
Teasdale, 2016) and that having a diversity of sectors, business models,
and individuals creates resilience in an ecosystem (Roundy et al., 2017).
By welcoming firms from different sectors at different stages of their life
cycle, the big tent attempts to draw attention from a broad range of
investors, thus eschewing Silicon Valley models of EE, which are not
replicable elsewhere (Breznitz, 2021; Audretsch, 2019; Maroufkhani
et al., 2018).
The conceptual model and its depiction of sectoral and temporal
dimensions are discussed in the following three steps: (1) the role of
innovation in finance and entrepreneurship—the impact of innovation
on both ventures seeking funding across sectors and the increasingly
novel ways in which financing is provided over time; (2) the inherent
tension between innovative firms and innovative finance – both
financing sources and firms in an entrepreneurial system are moving
targets, linked but simultaneously changing to match variations in sec­
toral and temporal dimensions; and (3) finance as the lifeblood of an EE
– innovation finance can be a big tent ecosystem, where entry in various
industry sectors, timing of exit, and reinvestment of capital create sus­
tained evolution and reproduction.
2. Theoretical framework and conceptual model
2.1. The role of innovation in finance and entrepreneurship
Innovation encompasses all types of business sectors and is inter­
twined with entrepreneurship. Innovation is defined as “processes of
learning and discovery about new products, new production processes
and new forms of economic organization” (Dosi, 1990, p. 299). Entre­
preneurship is defined as proactive, innovative, risk-seeking behavior
(Covin and Slevin, 1991, p.7). Innovators may have only loose ideas
about some gap in knowledge or the market as they act on their ideas,
but their proactiveness in taking risks to operationalize their ideas is
entrepreneurial. In other words, entrepreneurial behavior breathes life
into innovation and vice-versa.
Having an innovative business idea is tempered by the ability to
persuade others to invest in it. A new idea, if too expensive to produce
commercially, too early or late to market, or poorly located in the case of
a brick-and-mortar operations, will struggle to procure financing.
Moreover, the providers of finance are not monolithic. A wide variety of
actors, expectations, and means of financing innovate simultaneously
but differently with regard to possible investment targets. Hence, the
idea is that there are two moving targets, firms and funders, trying to
connect and match across variations in the sectoral and temporal
dimensions.
Fig. 1 depicts the basic innovation finance ecosystem. Innovation
affects both entrepreneurial ventures and financing. Finance enters and
exits entrepreneurial ventures. Successful exits create more capital for
successive investments.
In the finance literature, it is assumed that funders are in control of
interactions with innovative firms (Kawasaki, 2015). Innovations by
firms offer the prospect of high returns to investors. The resulting profits
are a “temporary monopoly” enjoyed by the firms and their funders
(Deutschmann, 2020, p. 37). However, investment is what allows this
situation to happen. Timing also plays a role. At a given moment, in­
vestors might believe, with irrational exuberance, that certain sectors
are more worthy of investment than others (Shiller, 2015). A few months
later, however, sentiment can change, even if the sector has remained
F. Haider Alvi and K. Ulrich Journal of Business Research 156 (2023) 113450

Fig. 1. Innovation finance ecosystem.

stable. Investors may then pass on the opportunity. (Roundy et al., 2017).
Additionally, under the diverse big tent, some firms in the ecosystem The cultural perception within society is also important in deter­
will pursue social, community, or loyalty objectives that are not mining the success or failure of an entrepreneurial ecosystem. In the
captured by financial metrics alone. This situation gives rise to the Global North, the innovation and incubation of entrepreneurial ventures
possibility of a change in the power exerted by funders. Instead of there is often seen as the sole preserve of the technology sector (Breznitz,
being only innovative firms molding themselves into what financiers 2021) run by “tech bros” in gentrified urban settings (Zukin, 2020;
desire, innovations in financing adapt to capture different types of Stehlin, 2016). The big tent ecosystem, exemplified recently by Innovate
companies. For example, social impact funds attempt to create social as Edmonton, counters this view by seeing entrepreneurial innovation as
well as financial returns. Social entrepreneurs, however, may not be socially useful across a broader demographic. Society’s opinion of
open to venture finance for fear of compromising their social mission by innovation is critical for the success of an ecosystem as a form of
simultaneously having to produce certain financial returns for impact democratization that goes beyond perceptions of the technology com­
investors (Stolz and Lai, 2020; Alvi, 2022). Thus, funders need to be munity. The socio-cultural structure of a region is also important for
creative in accessing social returns. Similarly, innovation in financial transnational entrepreneurship as a dimension that converts EEs into
technology, or FinTech, is creating capital intermediation. It provides poles of attraction for entrepreneurs and international investment
new avenues for funding, creating further multi-directionality between (Urbano et al., 2011).
firms and funders (Knewtson and Rosenbaum, 2020). For example,
certain types of crowdfunding provide experiences or non-financial re­
2.2. Linkages and tension between innovative firms and innovative
wards, and initial coin offerings (ICO) use blockchain-based crypto­
finance
currencies to create a community and loyalty.
The customary consideration of life cycles in EEs is that of a unidi­
There is a tension between the natural path of the innovation of
mensional, linear continuum of birth and maturity of firms (Berger and
entrepreneurial ventures and the demands of investors. Innovation
Udell, 1998; Bonini and Capizzi, 2019). This view results in funding gaps
evolves and accumulates knowledge on a journey that is like a long,
as firms move from early-stage to growth and maturity (Cumming et al.,
meandering river that changes direction; finance focuses on returns that
2019b). Big tent ecosystems, however, embrace evolution and renewal
can be like a crashing waterfall – a more direct journey. Pyka and Bur­
(Cantner et al., 2020; Thomas and Autio, 2019) by considering not only
ghof (2014) argue that this tension is due to divergence between the
firm age but also the diversity of industry sectors and participants
entrepreneurial vision taking time (Schumpeterian approach) and
(Roundy et al., 2017).
sources of finance employing the internal rate of return or net present
The external sources and facilitators of financing considered in this
value (neoclassical economics approach). The results of this tension are
paper for illustrative purposes are family and friends, informal investors,
unclear. For example, VCs have been associated with the promotion of
angel investors, incubators and accelerators, crowdfunding, blockchain,
industry-level innovation (Kortum and Lerner, 2000; Dessi and Yin,
government, VCs, private equity, banks, angel investors, pension funds,
2012). Yet, pushing for commercialization has a chilling effect on sci­
and capital markets. This list is illustrative, not exhaustive. These
entific discovery (Demirel and Mazzucato, 2014). Further, some argue
sources of finance are themselves subject to innovation and play an
that firm innovativeness can result in greater difficulty in accessing
important role not only in moving from early stage to growth stage to
financing (Frimanslund et al., 2022).
maturity but also in helping renew the dynamic cycle of rebirth in how
Innovation is a process of creating new ways of doing things. Keeley
finance is provided.
et al. (2013) classify these new ways as 10 types within the categories of
Capital may be a commodity, but the way it is delivered evolves,
business configuration, product offering, and customer experience.
reflecting the temporal dimension. Attempts to match sources of finance
These much cited categories can be seen as constituting better ways of
to the stage of a firm within a life cycle (Berger and Udell, 1998) may
doing things. Innovation is not only about breakthrough inventions and
mask the dynamism of births and deaths of firms occurring within the
patents but also about ongoing improvements in the operating aspects of
ecosystem (Cantner, 2020). Within a biotic ecosystem, dead organisms
how those inventions are adopted by businesses to effect operational
become a fertilizer to support the birth and survival of their own and
improvements (Breznitz, 2021). Innovating the business configuration
other species. New ideas and firms arise from failures. Knowledge and
occurs in the profit model, network, structure, or process of the business.
behaviors are absorbed into other firms, often by people moving from a
Innovating the product (or service) offering takes place in product per­
failed firm to a successful one. The disappearance of a certain type of
formance and the product system. Innovating the customer experience
firm is not an extinction. Instead, it can be an evolutionary step that
consists of service, channel, brand, and customer engagement. Identi­
continues elsewhere in the ecosystem. Applying the biotic metaphor of
fying or building innovative capacity in an entrepreneurial venture is
ecosystems to organizations implies that the ecosystem has multiple
attractive to investors because it becomes an engine of growth.
species and is not a monoculture of technology and VCs. Evolutionary
Not all innovations are equal. Some may take longer to develop, and
steps can occur between sectors. There are not only multiple sectors and
others may be more impactful. Innovation is experienced by both
funders to be matched but also prospects of hybrid species emerging
entrepreneurial ventures and their financiers, and there is great
(McMullen, 2018) and innovation resulting from big tent diversity
complexity in how firms connect with sources of finance at various

3
F. Haider Alvi and K. Ulrich
stages of the life cycle. Fig. 2 illustrates the structure of the tension
between innovation and finance in the innovation finance ecosystem.
Fig. 2 depicts how innovation magnifies the uncertainty of matching
firms and funders as a dense web of possible connections. Innovation
affects firms based on the stage of the life cycle (early, growth, or
maturity) and affects funders based on platform, product technology,
and level of due diligence. Sectoral and temporal tensions are embedded
in Fig. 2. In terms of sector, elements of configuration, offering, and
customer experience can describe firms across different industries. From
an investor point of view, innovation can be perceived differently. In the
example of product technology, a software-as-service (SAS) firm devel­
oping apps does not need the same investment in product performance
as a biotech company formulating a blockbuster drug or vaccine.
Temporally, the complex interaction between various sources of finance
occurs at various stages of firm maturity. For example, given that in­
novations in product technology and performance (offering) may take
longer and require greater investment than innovations in channel
(customer experience), matching to investors with commensurate time
horizons is imperative. Revisiting the SAS versus biotech example, in­
novations in product performance would take much longer for the
biotech company. Hence, the matched funders would have a very
different profile. Further, innovations may create different types of in­
teractions between investors. These interactions can be sequential,
moving from crowdfunding to angels to VCs, or concurrent, with several
types of funders co-investing simultaneously (Bessiere et al., 2020;
Capizzi et al., 2022).
Equally, sources of funding are also subject to innovation. If the
funders themselves are firms, then they are subject to the same sectoral
and temporal effects. For funders, platform innovations are exemplified
by how the product technology innovation of blockchain has enabled
cryptocurrencies and ICOs (offering). Additionally, angels and crowd­
funding, as patient, long-term capital, have more relaxed due diligence
requirements than VCs or stock exchanges. Hence, they enable greater
funding access for firms.
2.3. Stage of maturity of entrepreneurial firms
The big tent EE includes early-stage, growth-stage, and mature en­
terprises. While experiencing innovation differently, all attempt to
resolve the inherent complexity of finding common ground and
matching with investors. Experiencing innovation differently at various
points of a firm’s stage of maturity reflects variation along the temporal
Fig. 2. Innovation effects, connecting finance to firms.
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Journal of Business Research 156 (2023) 113450
dimension. Early-stage companies focus on configuration of their profit
model, network, structure, and process; growth-stage firms focus on
product performance and the product system as they scale their busi­
ness; mature-stage companies are concerned with service, channels,
branches, and customer engagement.
Early-stage companies make efforts to engage in innovative ideation,
attempting to configure a plan or narrative of their activities that an
investor might find appealing. In the early-stage, given the lack of
operating history, investors assess the team, value proposition, market
size, and growth potential. Traditional business plans, seen as inade­
quate for high-growth firms, are overlooked in favor of iterative tools
such as the lean canvas (Maurya, 2012; Maurya 2016) that communicate
intended innovation to investors such as friends and family, informal
investors, angels, and private equity firms (De Cock et al., 2020). Early-
stage company matching to investors has come to mean the succinct
articulation, often on on a single page, of the customer pain point,
customer segments, unique value proposition, solution to a problem,
channels and pathway to customers, revenue streams and recurring
revenue or churn, cost structure including overheads, people costs,
customer acquisition, and specific key metrics to track progress.
In growth-stage companies, slow, incremental growth is anathema to
survival. Rather, a rapid ascent is perceived as necessary to distance a
firm’s innovative business model from that of potential competitors.
Firms attempt to produce sufficient throughput to achieve the so-called
hockey stick or 10x growth (Maurya, 2016) coveted by VCs and private
equity firms (Kawasaki, 2015). Scaffolding for growth occurs by mobi­
lizing resources (cash, people, knowledge, systems, and culture) that are
innovative in terms of transforming, extending, or reinforcing the firm’s
product offering and enabling scaling-up (Zietsma et al., 2020).
For mature-stage companies, innovations look very different, with a
focus on heightening the customer experience in terms of service,
channel, brand, and overall customer engagement. Once they achieve
scale, large firms attempt to innovate by acting like small firms through
corporate entrepreneurship. Individual managers attempt to renew
established firms with the ideation ethos of early-stage companies,
creating niches of innovation to find new avenues for sustaining
competitive advantage (Corbett et al., 2013). Financing of such inno­
vation strategies for mature firms can involve private equity and capital
markets. Investment banks usually provide advisory services for mergers
and acquisitions, restructuring, and corporate finance transactions.
Intertwined with the temporal dimension is the sectoral dimension.
Much of the narrative around firms moving through the early, growth,
F. Haider Alvi and K. Ulrich
and maturity temporal stages is based on research on the technology
sector, reflected by the ubiquitous lean canvas (De Cock et al., 2020).
However, such tools offer a poor fit in other sectors and require adap­
tation. For example, the complexity of social enterprises is not captured
by technology sector tools such as the lean canvas. There is therefore a
need for methodological rethinking of such tools to ensure better
matching of firms to funders (Bresciani and Eppler, 2020). In a big tent
EE that welcomes a diversity of firms, the complexity of the temporal
dimension is magnified, potentially exponentially, depending on how
many diverse sectors are represented. The combination of the temporal
and sectoral dimensions adds to the complexity of matching firms and
funders as depicted in the dense web of possible connections in Fig. 2.
Based on the discussion in this section, the first proposition is
formulated:
Proposition 1: EEs have sectoral and temporal dimensions that are
affected by the tension between the deliberateness of innovation and the
urgency of financing.
2.4. Sources of finance
Unlike technology ecosystems, where firms are concentrated in a
single sector and VCs dominate funding, big tent ecosystems have a
broader group of investors, creating more choices for matching. As
funders innovate and proliferate, the assumption in the literature that
funders control the investment discussion with firms might need to be
revisited. That is, a broader choice of funders may allow firms to switch
between funding options in a big tent ecosystem. This scenario would
increase the uncertainty of matching. Hence, it is important to under­
stand innovations among funders.
Financing sources have experienced innovation in different ways,
subject to the same tripartite forces of configuration, offering, and
customer experience identified by Keeley et al. (2013). In terms of
configuration, innovations have been observed in incubators, accelera­
tors, and capital markets. Offering innovations include blockchain and
crowdfunding. Customer experience innovations have meant evolution
in terms of angels and crowdfunding.
As an example of configuration, incubators and accelerators have
provided innovations in terms of their profit models, structures, and
networks as platforms to match firms and funders. Incubators, often
defined as not-for-profits given their association with government in­
stitutions and universities since the 1950 s, are increasingly at the heart
of creating regional EEs that provide pathways to funders (Roundy,
2021; Lukosiute et al., 2019). Accelerators, emerging in 2005 and
ostensibly offering a distinct function from that of incubators to help
further scale firms with seed capital, are increasingly managing their
own funds or are bankrolled by VCs in exchange for early access to firms
(Cohen et al., 2019; Lukosiute et al., 2019). Over time, the distinction
between incubators and accelerators has become blurred (Lukosiute
et al., 2019; Hausberg and Korreck, 2020), but their evolving role as
pathways to funders, proxies for VCs, or direct investors is apparent.
Irrespective of nomenclature, incubators and accelerators are indis­
pensable for matching firms and funders.
An example of an innovation in offering is that of digital currencies
enabled by blockchain. Blockchain technology disintermediates tradi­
tional ways of transacting business. As opposed to paper money (fiat
currency) or electronic equivalents that rely on processing by financial
institutions and central banks, blockchain technology creates a decen­
tralized ledger so that individuals can directly transact with each other
using digital cryptocurrencies (Tapscott and Tapscott, 2017; Drescher,
2017; Chen and Bellavitis, 2020). Entrepreneurial firms can use cryp­
tocurrencies to raise capital through ICOs where coins or tokens are
convertible into an underlying cryptocurrency. Entrepreneurs use these
tokens to increase loyalty among customers. They ultimately convert
customers into investors, who fund the business and help it increase its
customer base, weaving together share ownership and customer loyalty
(Seale, 2019; OECD, 2019). ICOs rely on network effects, where the
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Journal of Business Research 156 (2023) 113450
benefits one might enjoy from becoming a user of a platform or com­
munity increase as the number of users grows. Such network effects have
given rise to widespread fraud, and ICOs are attracting greater regula­
tory scrutiny (OECD, 2019). Additionally, in the aftermath of COVID-19,
there are increasing challenges for international entrepreneurs in doing
business globally, given that national boundaries matter more (Zahra,
2021). Blockchain allows entrepreneurs such as born global firms the
possibility of financing directly with partners in a geographically
distributed value chain, without having to negotiate through the
pandemic-heightened resistance of financiers, governments, and supply
chains looking to prioritize local impacts over global connections.
An example of financing innovation in customer experience is found
in crowdfunding platforms. Crowdfunding secures financing from a
wide group of people (the crowd, who are strangers as opposed to
friends and family). Types of crowdfunding include donation, reward-
based, operating, debt, and equity crowdfunding. These types of
crowdfunding provide valuable feedback on problem/solution valida­
tion, product validation, market validation, penetration, and growth
possibilities (Paschen, 2017; Troise et al., 2021). In donation and
reward-based crowdfunding, financial returns are sublimated to an
emotional connection with a social objective, educational endeavor,
unusual hobby, personal tragedy, or non-monetary reward such as
recognition, events, or experiences, including meeting the founders
(Paschen, 2017; Troise et al., 2021). The innovation of crowdfunding
provides both ease of access to funding and operational insights that can
lead to better outcomes in subsequent financing rounds. Crowdfunding
platforms are easily accessed via an Internet browser, without the
onerous disclosure requirements of capital markets or the intensive due
diligence and control of VCs seeking high-investment returns (Zeis­
berger et al., 2017). Operationally for crowdfunding firms, the funding
exercise also yields product or market insights and business model
validation. Funding success is a proxy for market acceptance of a firm’s
business model, and rapid iteration of strategy can be informed by the
observation of crowd behavior. Taken together, the ease of access and
operational insights of crowdfunding democratize financing, creating a
stage-based alternative for start-ups and small businesses (Cumming
et al., 2019b) leading to subsequent angel and VC rounds (Bessiere et al.,
2020). The financing of start-ups and spinoffs through a variety of novel
financing methods such as VC, crowdfunding, and ICOs also entails
additional risk compared to traditional financial instruments such as
traded equity or corporate debt (Xia et al., 2018). Accordingly, the
second proposition is formulated:
Proposition 2: EEs have innovation effects for firms based on the
stage of the life cycle and for funders based on the platform, technology,
and due diligence and control, making matching more uncertain.
2.5. Finance as the lifeblood of an ecosystem in practice
The reliable entry and exit of finance is the lifeblood of an EE.
However, financing innovation is both risky and expensive for investors
(Demirel and Mazzucato, 2014). For entrepreneurial innovation,
particularly in the early and growth stages, capital is needed to grow the
business. An entrepreneurial venture must find financiers willing to bet
on future returns rather than focusing on near-term risks and the
omnipresent possibility of failure (Perez, 2002).
Table 1 illustrates how the innovation finance ecosystem can be
applied in practice in the Canadian provinces of Ontario and Alberta.
Table 1 denotes the temporal dimensions of how the 13 sources or fa­
cilitators of finance might invest in early-stage, growth-stage, or mature-
stage entrepreneurial firms. It also shows the typical deal size, internal
rate of return (IRR) hurdle rate (a metric of investor expectations of
minimum returns), and exemplars of the 13 types of sources or facili­
tators of finance. Table 1 is not comprehensive in terms of exemplars,
nor definitive in terms of deal size or IRRs. It is simply meant to illustrate
what an innovation finance ecosystem looks like in practice.
Table 1 highlights the unique attributes of an innovation finance
F. Haider Alvi and K. Ulrich Journal of Business Research 156 (2023) 113450

Table 1
Summary of external sources and pathways for procuring finance.
Financing Typical deal Typical Exemplars Investee size
pathways size IRR Alberta Ontario Other Early Growth Mature
hurdle

1 Family and $1K–$25 K 0–10 % n/a n/a n/a X

friends
2 Informal $10 K– 0–15 % Undisclosed Undisclosed Undisclosed X X
investors $100 K
3 Incubators n/a n/a Innovate Edmonton, Innovate Communitech, MaRS, Futurpreneur, JLABS X
Calgary, Northern Alberta Community Innovation Lab,
Business Incubator Haltech, 1855 Whitby,
LaunchYU
4 Accelerators n/a n/a Creative Destruction Lab – Creative Destruction Lab – Y Combinator, EO X X
Haskayne, ATB X Accelerator, Rotman, DMZ (Ryerson), Accelerator, Mitacs
Catalyzer, 500 Global, Plug and VentureLab
play
5 Angels $50 K– 30 % Alberta Angel Investors, Angel Investors Ontario, National Angel Capital X X
$750 K Venture Capital Association of SWO Angels, SOAN, Maple Organization, Valhalla
Alberta Leaf Angels Angels
6 Crowdfunding $10 K–$80 n/a ATB BoostR, NexusCrowd, NexusCrowd, InvestX, FrontFundr (Canada), X X
K InvestX, SeedUps Social Venture Connection Kickstarter
(SVX) (US&Canada),
Indiegogo (US)
7 ICOs, crypto, n/a Token Funder Token Funder Token Funder X
blockchain
8 Government $1K–$5mn n/a Aboriginal Business & Ent SmartStart OCE, Talent Gov’t of Canada X X
Develop., Alberta Innovates, Edge OCE, Ontario business grants, IRAP,
Micro-business Training Interactive Digital Media, SR&ED, BDC, EDC,
Centre, Alberta Export Co-op tax credit, Canada- Canadian Ag.
Expansion Program, Canada- Ontario job grant Partnership
Alberta job grant
9 Venture capital $500 K– 30 %+ Bluesky Equities, Platform MaRS IAF, Real Ventures, Summit Partners, Azure X X
(2019: 539 deals $50mn+ Calgary, Accelerate Fund, iGan Partners, Espresso Capital Partners
worth $6.2bn) (avg. Panache Ventures Capital, Lumira Ventures
$12mn)
10 Private equity $75mn– 20 %+ TriWest Capital Partners Brookfield Business BC Partners, X X
(2019: 526 deals $1bn+ 2x capital Partners, Onex Corp., Birch ThomaBravo, KKR,
worth $19bn) (avg. multiple Hill Carlyle, Blackstone,
$500mn) Warburg Pincus
11 Banks Variable Prime ATB, BMO, CIBC, National, BMO, CIBC, National, HSBC X X
rate+ Scotia, TD. Credit unions: Scotia, TD. Credit unions:
Servus, Connect Meridian and Alterna
12 Pension funds $250–$1bn 15–18 % AIMCo Ontario Teachers, OMERS, Canada Pension Plan, X X
Healthcare of Ontario PSP Investments, Caisse
Pension Plan de depot, bcIMC
13 Capital markets TSXV: n/a TSXV (Calgary) TSX (Toronto) Alternative Investment X X
$2.7mn Market (London Stock
avg. IPO Exchange)
TSX: $68mn
avg. IPO

Source: Authors. Currency: Canadian dollars. 2019 deal size data for VCs and private equity from CVCA Intelligence (2019a; 2019b). TSX data from TSX (2019).

ecosystem in terms of deal size, return expectations, importance of ge­
ography in early and growth stages, and role of government. In terms of
deal size, there is considerable overlap in certain cases, suggesting that
funding gaps (Block et al., 2017; Cumming et al., 2019a) could be
related to taking an overly narrow view of the innovation finance
ecosystem. Examples of such a view are incubators and accelerators
applying VC investability criteria when admitting incubatees (Hausberg
and Korreck, 2020) and the tendency to view innovation through the
lens of the monoculture of the technology sector and VCs rather than the
big tent (Roundy et al., 2017; McMullen, 2018). Even in terms of
research, studies measuring the strength of an EE’s access to finance do
so solely with VC funding as a proxy (Stam and Van de Ven, 2021). The
bias of viewing the financing of an EE through the lens of VCs creates the
perception of gaps where there might instead be overlaps. As illustrated
in Table 1, an investment of $25 K could come from friends and family,
informal investors, crowdfunding, or the government, whereas $500 K
could come from angels, VCs, or government, and so on. A healthy EE
has multiple sources of finance with overlaps rather than gaps. This
scenario allows firms to adapt their fundraising approaches to several
sources simultaneously across early, growth and mature stages. The big
tent approach allows for sectoral diversity, and such diversity could
draw interest from a broader range of funders.
Taking a broader view of the sources of finance extends beyond start-
up finance by considering the possibility of exits required by investors
who may reinvest their gains back into the ecosystem. Such reinvest­
ment should be tracked as an indicator of the health of the ecosystem.
Examining reinvestment would create insight into how an ecosystem
evolves and reproduces itself, much like a biotic ecosystem. Reinvesting
returns into the same market is essential for the broader society in which
the ecosystem is located (Breznitz, 2021), particularly as such ecosys­
tems are regional (Roundy, 2021). Reinvestment following successful
exits supports policy initiatives around industrialization, ecosystem
transformation, innovation, and economic growth (Montanaro et al.,
2022). In contrast to reinvestment, repatriation of returns outside the
geography where investments are made exacerbates social inequality.
Wealth becomes concentrated with founders and distantly located VCs
and does not trickle down through society (Breznitz, 2021).
Differences in return expectations and investment platforms also
affect funding gaps and overlaps. Firms might choose different sources
based on their own comfort levels regarding issues such as dilution

6
F. Haider Alvi and K. Ulrich
(Kawasaki, 2015). Angels require a moderate amount of due diligence,
dilution per round of around 20 %, moderate intrusion, and return ex­
pectations of around 30 %. In contrast, VCs require intensive due dili­
gence, dilution per round of 25 % to 35 %, high intrusiveness (including
seats on the board), and return expectations of more than 40 %.
Crowdfunding requires very little due diligence, no ownership dilution
to shareholders, minimal intrusion from offering participants in terms of
firm strategy and operations, and low return expectations (if any).
Accordingly, the third proposition is formulated:
Proposition 3: The successful exit and reinvestment of proceeds back
into an EE by funders engenders the long-term robustness of the
ecosystem through funding overlaps rather than gaps.
Table 1 also illustrates the importance of geography in the shape and
scale of ecosystems when comparing the smaller market of Alberta with
the larger province of Ontario. For early- and growth-stage firms, rele­
vant ecosystems consist largely of actors close to home. In smaller
markets, the role of government is also more important. Ontario attracts
international capital due in part to investments in Toronto operations by
tech giants and the relative success of government funding initiatives
such as Communitech and MaRs as pathways to the network of regional
ecosystems of southern Ontario. Alberta, on the other hand, benefits
more from government initiatives as catalysts for the ecosystem,
exemplified by Alberta Innovates, Innovate Calgary, and Innovate
Edmonton. In such cases, government initiatives play a prominent role
not only in shaping the ecosystem but also in funding it.
Additionally, Table 1 also hints at nascent cross-regional linkages.
For example, Creative Destruction Lab expanded to Alberta from
Ontario, creating matching opportunities in two markets rather than
one. Likewise, national pension plans such as Canada Pension Plan take
a broader, multi-jurisdictional investment view than AIMCo, which is
more Alberta focused. While it is understood that EEs can flourish
regionally (Roundy, 2021), there is less certainty regarding the
geographic limits of an ecosystem. The example of so-called “Silicon-
Hyphens”, geographically dispersed ecosystems that become feeders for
Silicon Valley, is cautionary in terms of the long-distance embeddedness
that impairs local ecosystems due to a lack of managerial attention
(Breznitz, 2021, p. 39). The limits of cross-regional cooperation may be
related to the inherent difficulties of taking ecosystems from one geog­
raphy, such as Silicon Valley, and attempting to replicate them else­
where (Audretsch, 2019; Maroufkhani et al., 2018; Breznitz, 2021).
Accordingly, the fourth proposition is formulated:
Proposition 4: EE models exhibit localization by geography, but
cross-regional cooperation may address funding gaps.
3. Conclusions
This article adds to the conceptual foundations of the role of inno­
vation in finance and entrepreneurship. It describes how financial
innovation increases financing opportunities for new entrepreneurs,
boosting projects and helping entrepreneurial ecosystems to develop,
while contributing to their international relevance. Within EEs, the
article contextualizes the tensions between the deliberateness of inno­
vation and the urgency of funding, especially depending on the stage of
firm development and sectoral and temporal dimensions. The model
illustrates how factors such as the stage of the company life cycle,
technology, and control and due diligence mechanisms complicate the
matching of supply and demand for both traditional and innovative
financing.
The conceptualization of an inclusive and broad innovation finance
ecosystem is illustrated by two provinces of an advanced OECD country,
namely Canada. This approach limits potential generalizability. Not
every country has similar profiles of innovation finance ecosystems, and
the research propositions invite further elucidation of what innovation
finance ecosystems look like as they cross borders. The matching of firms
and funders described in the conceptual model aligns with the broader
literature on the co-evolutionary nature of management innovation
7
Journal of Business Research 156 (2023) 113450
(Volberda et al., 2014). The reinvestment, reinvention, and rebirth that
are hallmarks of the innovation finance ecosystem are the result of co-
evolutionary and innovative interactions between firms and funders.
Such co-evolution and innovation is seductive from a distance. The at­
tempts of Global South nations to create ecosystems modeled on those of
the Global North inspire policy agendas to promote needed economic
growth, not unlike failed efforts to replicate Silicon Valley in the Global
North (Audretsch, 2019; Maroufkhani et al., 2018; Breznitz, 2021).
Thus, innovation finance ecosystems have implications for political
economy. Just as environmental, social, and governance (ESG) concerns
and social impact investing by the Global North into the Global South
can be seen as post-colonial wealth extraction (Alvi, 2022), the absence
of reinvestment by funders into ecosystems can also risk exacerbating
wealth inequality (Breznitz, 2021).
Further research based on the identified research propositions can
continue the journey toward a better understanding of not only the is­
sues of firm-funder matching identified in the finance literature but also
the broader societal and global implications. By conceptualizing inno­
vation finance, this paper identifies a diversity of sectoral and temporal
contexts that must be considered in a geographically defined EE, ideally
creating funding overlaps rather than gaps. Based on the conceptuali­
zation of the innovation finance ecosystem, a four-part future research
agenda is proposed to add to the literature on matching firms and
funders.
3.1. Relationship between innovation and sectoral and temporal
dimensions
More research is needed on the relationship between innovation and
the sectoral and temporal dimensions according to which innovation
varies within an EE. As captured in Proposition 1, the existing research
suggests that there are difficulties in the matching of firms and funders
given the inherent tension between the deliberateness of innovation and
the urgency of financing. This precarious balance is further complicated
by complexities in sectoral and temporal dimensions. The big tent het­
erogeneity of an EE, like the underlying biotic metaphor, is a challenge
to a monoculture default setting in many ecosystems. The stereotype of
VCs targeting technology companies run by typically white and occa­
sionally Asian “tech bros” (Stehlin, 2016; Zukin, 2020) is often true in
the Global North. Opening the tent to diverse firms and funders could
result in a greater number of mutually beneficial matches, and this
possibility needs to be tested. Table 1 hints at the possibility of funding
overlaps rather than gaps and significant variations in return expecta­
tions. Thus, matching could be improved with a broader ecosystem
producing greater opportunities between firms from multiple sectors at
different stages of the life cycle and a greater variety of funders. Ex­
amples of lines of research include examining the behavior of a partic­
ular type of funder inside and outside a big tent ecosystem. If an angel
investor or VC ordinarily invests in technology companies, as illustrated
in Table 1, do they consider other types of innovation in other sectors
and on different time horizons when part of a broader ecosystem?
3.2. The impact of innovation in a big tent on increasing the uncertainty
of matching
The big tent ecosystem, by definition, expands the number of firms
and funders to be matched, as depicted in Fig. 2. The effect of the larger
number of participants can change the power balances between funders
and firms. As Table 1 illustrates, there are possible funding overlaps
rather than gaps, which can affect the customary assumption that fun­
ders control discussions with firms (Kawasaki, 2015). Greater funding
choices for firms may mean less power for funders.
Innovation is at the core of such increased matching uncertainties in
a big tent. For example, innovations such as crowdfunding interact with
other sources of finance, changing how firms and funders match with
one another. There may be sequential laddering or concurrent financing
F. Haider Alvi and K. Ulrich
whereby firms start with crowdfunding, then move to angels and then to
VCs (Bessiere et al., 2020; Capizzi et al., 2022). In such interactions,
crowdfunding provides necessary capital to show the viability of a
business model, attracting patient capital from angels, and then scaling
capital from VCs. Thus, one area of further research would be to
continue to test the degree to which innovations in funders improve
matching in subsequent rounds of financing.
Another area of further research would be among socially innovative
firms. Such firms may find the financialization of social goals unpalat­
able and thus rely on forms of financing that allow them to maintain
their values. Here, social innovation might hinder matching (Alvi, 2022;
McMullen, 2018; Steiner and Teasdale, 2016). Ironically, shareholder
activism and ESG metrics may make the big tent more attractive for VCs
when they look for exits. Further research should investigate whether
socially innovative firms water-down their values to attract funding.
3.3. Reinvestment as the lifeblood of the ecosystem
It is not enough to focus on investment entry and exit. Renewal and
reinvestment back into the same ecosystem should also be considered.
Proposition 3 describes the desirability of further research on reinvest­
ment of innovation finance as the lifeblood and key determinant of the
perpetuation of the ecosystem. This process is reproductive rather than a
finite continuum of firm birth to death. Finance will be attracted to
ecosystems that produce a steady flow of reinvention and innovation of
ideas, know-how, and talented individuals. The failure of reinvestment
can contribute to exacerbating social inequality, where investment gains
are repatriated in another geography (Breznitz, 2021). Promising
research on the reinvestment of proceeds might employ nuanced qual­
itative inquiry that asks funders about the extent to which they reinvest
into the same ecosystem, and the reasons for why or why not.
3.4. Geographic limitations and opportunities
Proposition 4 highlights the importance of studying the limitations of
ecosystems by geography. Effective ecosystems are known to be local
and eventually regional (Roundy, 2021), yet ecosystem models are not
transportable across geographies. This conclusion is a common refrain in
flawed attempts to replicate Silicon Valley elsewhere (Audretsch, 2019;
Maroufkhani et al., 2018; Breznitz, 2021). The question then remains as
to how geographically remote ecosystems could create global relevance
and address funding gaps. For example, Startup Chile attempted to bring
the world to the tip of South America by offering cash grants to global
entrepreneurs in exchange for 4–12-month residencies in Santiago.
However, this ecosystem has not been successful in addressing funding
gaps (Carmel and Richman, 2013; Harima et al., 2021). Conversely,
Innovate Edmonton’s ecosystem appears to address funding gaps and to
welcome all into the big tent, but must continue to invest in global
platforms to attract entrepreneurs to North America’s northern-most
major city. Innovate Edmonton’s approach reflects those of similar-
sized EEs in locations such as Copenhagen, Vienna, Vancouver, and
Santiago, which, to attract global attention, seem to innovate out of
necessity. Larger EEs such as Silicon Valley, New York, London, Seattle,
and Toronto have built-in infrastructures that attract deeper capital
pools, global businesses, and primary research, producing breakthrough
inventions across a number of fields. Smaller EEs have to find ways to
differentiate themselves. Examples of differentiation include social
innovation and model city leadership (e.g., Copenhagen and Vienna),
capitalizing on longstanding creative industries (e.g., Austin and Van­
couver), and culture and/or geographic milieu (e.g., Santiago, Montreal,
and Berlin). Such differentiation strategies create a sense of self-belief
because local residents, who might not otherwise get involved in EEs,
see transnational entrepreneurs in their midst, creating a sense of
“entrepreneurial energy” that locals experience every day (Harima et al.,
2021, p. 99).
Research on the global spread of EEs, with their ubiquitous
8
Journal of Business Research 156 (2023) 113450
incubators and accelerators, is recommended. If it is true that the Silicon
Valley model does not travel well, it would be revealing to find out why.
A useful dimension for this analysis would be firm-funder matching,
building on the model presented in this paper. Further, existing political
economy research specifies archetypes of the heterogeneous diffusion of
global financial standards (Alvi, 2021). An interesting comparison
would be to verify whether standardized ecosystem models have
diffused internationally and whether such diffusion is consistent with
other financial standards.
CRediT authorship contribution statement
Farzad Haider Alvi: . Klaus Ulrich: Writing – review & editing.
Declaration of Competing Interest
The authors declare that they have no known competing financial
interests or personal relationships that could have appeared to influence
the work reported in this paper.
Acknowledgements
Matt Saunders, Eric Plesman, John Ruffolo, Damien Steel, Gary
Huggins, Mark Wiseman, Catherine Warren, Dr. Eric Wang, Dr. Oli
Mihalache, Dr. Michael Mauws, Dr. Jocelyn Grira, Dr. Vincenzo Capizzi,
Dr. Lisa Watson, Dr. Deborah Hurst and Russ Kalmacoff.
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Dr. F. Haider Alvi is a former corporate financier turned academic and company director.
Having grown up in North America, he went on to work in Asia, the Middle East, Europe
and Latin America. During his 11-year career as a banker focused on the financial services
sector, he advised government shareholders and banks in 17 emerging market countries on
mergers, restructurings, and privatizations. Subsequently, he was involved with social
impact investing in Latin America. As an academic, Dr. Alvi has held university appoint­
ments in Mexico City (Tec-EGADE) and Toronto (York-Schulich) and is presently Assistant
Professor of Innovation Finance at Athabasca University in Alberta, Canada. His research
investigates the individual agency and entrepreneurial orientations required to navigate
through turbulent contexts, and increasingly on the role of innovation finance. Dr. Alvi is
presently the Chair of the Board of OECM, Member of the Board of Innovate Edmonton,
and also serves on several volunteer Boards.
Klaus Ulich is a professor and researcher at the ESIC Business and Marketing School in
Spain. He is also Director of the Business Administration Degree.